It is said that merger and acquisition (M&A) is one of the two ways of corporate growth, the other being organic growth by increasing capital from internal sources. However, a good number of the banks in Ethiopia have opted for organic growth through rights issues, most of them resolving to increase their capitals by three to four folds to be implemented in the coming years. Quite invariably these capital increase resolutions rely on capitalizing dividends the companies expect to earn in the years to come – a rather slow process. Apparently, there is a clear lack of innovation in raising capital. The institutions are not the only ones to blame, however. Unfortunately, the banking (and insurance) regulation  does not innovate. For instance, it outlaws the creation of varied classes of shares. One can issue only common shares in Ethiopian financial institutions.

Especially Under the New Commercial Code

In the period between the beginning of October and the end of December most publicly held companies convene their general meetings. This includes firms in the financial sector, whose high-profile assemblies are often newsworthy.  Therefore, this is high time to talk about shareholder meetings and their relevance apart from fulfilling legal requirements.

It is often said that shareholder meetings are simply a formality. They have no real power except rubber-stamping the proposals of the board of directors. Whatever decisions are made at shareholders’ general meetings are made because the board wants them to be. If at all, the instances where shareholder meetings opted out of board proposals are few and far between. This is because, under the law, only the board of directors can prepare the agenda of the general meeting, and the meeting cannot discuss matters which are not on the agenda. But both by law and practice, the board prepares not only the agenda but also the proposed resolutions for approval. In effect, it is not just the agenda that the board presents to the meeting; it includes detailed proposals along with each agenda item.

The Council of Ministers in its 13th regular session held on August 4, 2022, resolved to open the banking sector to foreign investors by endorsing a policy document. Following this decision, the National Bank of Ethiopia (NBE) circulated the policy along with a draft amendment to the banking business proclamation. The policy document as well as the draft legislation allow four models for the entry of foreign banks into Ethiopia, viz., acquisition of stakes in existing banks, subsidiary formation, the opening of branches, and opening of representative offices. While opening a representative office cannot amount to market entry, it has long been permitted for some foreign banks. Representative offices can only do promotional activities and, most importantly, cannot offer services to customers. There is no mention of the joint venture as an entry model, contrary to earlier reports in some media. This is not to suggest that the proposed models are not good enough. On the contrary, one may be tempted to judge that the policy gives too much in terms of entry options. With Ethiopia being the second most populous country in the continent with one of the lowest rates of financial inclusion, there was no doubt that Ethiopia’s banking market would attract interest even if the country restricts the modes of entry.